Defend your choice of model, and explain why it is appropriate
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FOR MORE CLASSES VISIT www.tutorialoutlet.com As a manager, it is important to understand how decisions can be analyzed in terms of alternative courses of action and their likely impact on a firm's value
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![Defend your choice of model, and explain why it is
appropriate
FOR MORE CLASSES VISIT
www.tutorialoutlet.com
Below is the information as of Mar. 20, 2015: Pfizer Inc. (PFE)
NYSE
Price $34.25 Mar 20, 4:02PM EDT
Beta: 0.89 P/E (ttm): 24.09 EPS (ttm): $1.42 Div & Yield: $1.12
(3.30%) Now you can assume that dividends will grow at a constant
rate
annually,
You can use the Dividend Discount Model (DDM) to find the
intrinsic value of this stock with the formula:
Po = [Do (1+g)]/(r-g) Where Po is the intrinsic value per share
g is the annual growth rate of dividends
r is the required rate of return for the stock using the Capital
Asset Pricing Model (CAPM):
r= riskfree rate + beta (market return – riskfree rate) Use the current
10-year Treasury bond rate for the riskfree rate of
return = 1.93% (in March) at www.cnbc.com or search at
google.com
S&P 500 Index return can be used for the market return = 12.4%
for 2014. (Source: http://money.cnn.com/data/markets/sandp/)
r= 1.93% + [0.89 (12.4% - 1.93%)] = 1.93% + 9.32% = 11.25% Do =
$1.12
g= – the dividend for last year retention ratio x ROE Payout ratio and
ROE for Pfizer are given under Key Statistics in
cnbc.com or finance.yahoo.com
Retention ratio = (1 – payout ratio) = (1 – 0.73) = 0.27 = 27%.
Payout ratio was given in finance.yahoo.com](https://image.slidesharecdn.com/defendyourchoiceofmodelandexplainwhyitisappropriate-170904085645/85/Defend-your-choice-of-model-and-explain-why-it-is-appropriate-1-320.jpg)
![ROE =
g=
Po = 12.30% (given) 0.27 x 12.30% = 3.32%. As a decimal, g =
3.32/100 = .0332 [Do(1+g)]/(r-g) = [$1.12(1+.0332)]/(11.25% -
3.32%) = ($1.12 x 1.0332)/(.1125 - .0332) = 1.1572/.0793 = $14.59
Compare Po to current market price of $34.25.
As a manager, it is important to understand how decisions can be
analyzed in terms
of alternative courses of action and their likely impact on a firm's
value. Thus, it is
necessary to know how stock prices can be estimated before
attempting to measure
how a particular decision might affect a firm's market value.
To prepare for this Assignment, choose a publicly-traded company,
and then
estimate your company's common stock price, using one of the
valuation models
presented in the assigned readings or outside readings.
Below is the information I received:
Pfizer Inc. (PFE)
NYSE
$34.25 Mar 20, 4:02PM EDT
Beta:
P/E (ttm):
EPS (ttm):
Div & Yield: 0.89
24.09
$1.42
$1.12 (3.30%) Use the 10-year Treasury bond rate for the riskfree rate
= 1.93% at www.cnbc.com or search at google.com of return
S&P 500 Index return can be used for the market return =
11.93%. Check google.com for 2014 return.](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
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Saltanat CuadraFarah Mohammad RasheedSabrina NaqviGloria the.docx
Saltanat Cuadra
Farah Mohammad Rasheed
Sabrina Naqvi
Gloria the Investor
1. Calculate the required rate of return using the Capital Asset Pricing Model (CAPM).
RCAPM = Rf + Beta of stock (Rm - Rf ) ,
where, Rf = Risk free rate of return, here treasury bond return is taken, Rf = 4.30%
Rm = return on market, here we taken as broad market return, Rm = 11.90%
(Rm - Rf ) = this can be said be Risk premium , = 0.119-0.043 = 0.076
Considering the above, stockwise RCAPM as below.
Rating of stock
Rf
Beta of stock
Market Prenium
RCAPM
1
0.043
+
0.65
x
0.076
0.0924
i.e.
9.24
%
2
0.043
+
2.3
x
0.076
0.2178
i.e.
21.78
%
3
0.043
+
1.89
x
0.076
0.18664
i.e.
18.66
%
4
0.043
+
1.2
x
0.076
0.1342
i.e.
13.42
%
5
0.043
+
1.35
x
0.076
0.1456
i.e.
14.56
%
6
0.043
+
0.67
x
0.076
0.09392
i.e.
9.392
%
7
0.043
+
1.78
x
0.076
0.17828
i.e.
17.83
%
8
0.043
+
0.95
x
0.076
0.1152
i.e.
11.52
%
9
0.043
+
0.92
x
0.076
0.11292
i.e.
11.29
%
10
0.043
+
1.5
x
0.076
0.157
i.e.
15.7
%
11
0.043
+
0.85
x
0.076
0.1076
i.e.
10.76
%
12
0.043
+
0.38
x
0.076
0.07188
i.e.
7.188
%
13
0.043
+
0.71
x
0.076
0.09696
i.e.
9.696
%
14
0.043
+
1
x
0.076
0.119
i.e.
11.9
%
15
0.043
+
0.73
x
0.076
0.09848
i.e.
9.848
%
2. Value of stock under constant dividend growth model,
P0 = D1 /(Ke-g) , D1 = D0 (1+g), D1 is the dividend receivable after 1 year
Rating of stock
D0 ($)
g
D1($)
Ke
P0 =
D0 x g
(D1/ke-g)
1
0.95
0.0065
0.956
0.0924
=
11.13
2
0
-1
0.000
0.2178
=
0.00
3
0
0
0.000
0.18664
=
0.00
4
1.3
0.0623
1.381
0.1342
=
19.21
5
0.75
0.0095
0.757
0.1456
=
5.56
6
6
0.05
6.300
0.09392
=
143.44
7
0
0
0.000
0.17828
=
0.00
8
0.75
0.0075
0.756
0.1152
=
7.02
9
0.38
0.0038
0.381
0.11292
=
3.50
10
0
-0.9
0.000
0.157
=
0.00
11
2
0.0225
2.045
0.1076
=
24.03
12
0
-0.01
0.000
0.07188
=
0.00
13
6
0.0525
6.315
0.09696
=
142.04
14
1
0.08
1.080
0.119
=
27.69
15
1.35
0.0885
1.469
0.09848
=
147.24
3. Comparison of market price of stock & stock value computed.
Rating of stock (given)
Market Price (given)
Market Value*
Stock value over market price ($)
1
12.05
11.13
-0.92
2
28.02
0.00
-28.02
3
17.75
0.00
-17.75
4
92.43
19.21
-73.22
5
63.79
5.56
-58.23
6
71.11
143.44
72.33
7
10.00
0.00
-10.00
8
49.51
7.02
-42.49
9
101.00
3.50
-97.50
10
39.78
0.00
-39.78
11
29.75
24.03
-5.72
12
73.09
0.00
-73.09
13
20.39
142.04
121.65
14
18.25
27.69
9.44
15
7.00
147.24
140.24
4. What do your results mean for Gloria?
Following shall be sequence while investing in these stocks on the basis of stock value computed.
Rating of stock (given)
Market Price (given)
Market Value*
Stock value over market price ($)
Sequence for investment
15
7.00
147.24
140.24
1
6
71.11
143.44
72.33
2
13
20.39
142.04
121.65
3
14
18.25
27.69
9.44
4
11
29.75
24.03
-5.72
5
4
92.43
19.21
-73.22
6
1
12.05
11.13
-0.92
7
8
49.51
7.02
-42.49
8
5
63.79
5.56
-58.23
9
9
101.00
3.50
-97.50
10
2
28.02
0.00
-28.02
11
3
17.75
0.00
-17.75
12
7
10.00
0.00
-10.00
13
10
39.78
0.00
-39.78
14
12
73.09
0.00
-73.09
15
Discussion Questions:
3. Compare the value.
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DuPont System of Business Financial Analysis
The DuPont system of analysis is used to dissect the firm’s financial statements and to assess its financial condition from three perspectives: Operations, Investment, and Financing.
Developed by Dupont (major US chemical company) financial staff in the 1920s to enable management to gain a deeper understanding of how to raise the Return on Owners’ Equity (ROE) by better management of three key components of its business:
Operational Efficiency: (Net Profit Margin)
Asset Use Efficiency: (Total Asset Turnover), where TAT = Sales/Total Assets, and
Financial Leverage (Debt) Management: (Financial) Leverage Multiplier = Assets/Total Equity = (1 + D/E),
SOURCE: Ross, et al., Ch. 3
Copyright ©2015 Pearson Education, Inc. All rights reserved.
3-‹#›
DuPont System of Business Financial Analysis
USE of Dupont System:
If ROE is unsatisfactory for some unspecified reason, then the Dupont Identity (see below) tells the analyst where to start searching for the reason(s) for the unsatisfactory ROE
Dupont Identity:
ROE = Profit Margin x Total Asset Turnover x Equity Multiplier
Copyright ©2015 Pearson Education, Inc. All rights reserved.
3-‹#›
Derivation of DuPont IDENTITY
Both ROE (defined as Net Income/Equity) and ROA (Net Income/Total Assets) are measures of profitability.
They differ because of debt financing (aka Financial Leverage)
Thus, (1) ROE = ROA x Equity Multiplier.
After some algebra, we obtain a more detailed version of (1):
(2) ROE = Net Income/Sales x Sales/Assets x Assets/Total Equity.
Substituting into (2) the definitions of key ratios, we obtain the Identity:
(3) ROE = Profit Margin x Total Asset Turnover x Equity Multiplier
NOTES: ROA = (Net Income/Sales) x (Sales/assets)
Equity Multiplier = Assets/Total Equity = (D +E)/E) = (1 + D/E)
Copyright ©2015 Pearson Education, Inc. All rights reserved.
3-‹#›
Simplifying the Modified DuPont Formula
We can simply the preceding formula by:
1) replacing the first two terms by the ROA ratio, since ROA = Net profit margin Total asset turnover.
2) Thus, ROE = ROA x FLM.
NOTE: The ROAssets belongs ENTIRELY to common stockholders. Hence, FLM is the equity “multiplier,” adjusting UPWARDS the ROEquity.
3) Recall, that we can reexpress ROA as follows:
Copyright ©2015 Pearson Education, Inc. All rights reserved.
3-‹#›
KEY FORMULA: Modified Dupont Formula
ROE = (Net Profit/Sales) x (Sales/total Assets) x (Assets/(Assets – Liabilities)), or
ROE = Net Profit Margin x Total Asset Turnover x FLM
Interpretation:
Operations: ROE can be improved by improving the profitability of operations (Net Profit Margin), e.g., improve production and sales efficiency by cutting costs and charging a premium price.
Investment: ROE can be improved by more effective use of assets that generate sales (Total Asset Turnover).
NOTE: The TAT ratio is a “multiplier”, telling us how many times the profit margin is EARNED EACH YEAR!
Financing.
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Financial Ratio Analysis Worksheet
Your Full Name:
Ahmed Alothman
2011
2010
2009
Basic Rules
Liquidity
Current Ratio
1.50
1.6
1.2
Should be >1.00
Quick Ratio
0.86
0.95
0.6
Good to see close to 1
Leverage
Debt to total asset ratio
0.19
0.19
0.26
Good to see less than 1
Debt to Equity ratio
1.003
1.03
1.35
Smaller is better
Activity
Inventory turnover
7.8
8.3
7
Higher turnover will be better --- Smaller inventory level will increase the turnover!
Fixed asset turnover
3.3
3.2
3.2
Higher turnover will be better --- Smaller fixed assets level will increase the turnover (Productivity of the fixed assets)!
Profitability
Gross profit margin
0.3
0.3
0.3
Higher is better (Lower cost of goods sold or Higher sales will increase the margin) --- Strategic directions (Ex. Focusing on sales quantity or Lean operations)
Operating profit margin
0.06
0.06
0.06
Higher is better – Operational efficiency will be indicated. Better cost structure might increase this margin.
Net profit margin
0.04
0.03
0.03
Higher is better. Total profitability (Corporate profitability). Check the interest expense and Discontinued operations.
Return on total Assets (ROA)
0.06
0.06
0.06
Higher is better. Consider EBIT and portion of total assets. The total sales for each $1 of total assets.
Your own financial assessment / Analyses / Suggestions:
Liquidity of Staples:
Liquidity ratios are used to measures the ability of the company to pay off its current liabilities.
Using current ratio it shows that staples can pay off its current liabilities more than 1.50, 1.6, 1.2 times respectively and still remain with enough. The company is stable in paying off its current liabilities
Using quick ratio Staples can pay off its liabilities 86 percent, 95 percent and 60 percent respectively of its current liabilities.
Leverage of Staples:
Leverage measures the risk level. But for staples, the company's assets are far more than its liabilities thus the company can be able to access loan application since its ability to pay is far better and stronger. The company is less risky.
Staples has a Debt to equity ratio of 1 which means that investors and creditors have an equal stake in the company's assets. Lower ratio shoes a more stable business. Creditors always views a higher debt to equity as risky and the investors have not funded the operations as the creditors have. The company should try and look for ways to reduce on the Debt to equity ratio.
Activity of Staples:
This measures efficiency on how Staples can control its stock. Staples has a very good inventory control system. This company can sell off its inventory more than 7 times in a single year.
T.
Chapter 7
The Arbitrage Pricing Theory (APT) provides an alternative to the Capital Asset Pricing Model (CAPM) for estimating expected returns. The APT assumes returns are generated by multiple systematic risk factors rather than a single market factor. It allows for assets to be mispriced and does not require assumptions of a market portfolio or homogeneous expectations. Under the APT, the expected return of an asset is equal to the risk-free rate plus the product of each risk factor's premium and the asset's sensitivity to that factor.
FINC 330 Project DescriptionsResearch Project Part 1Ra.docx
FINC 330 Project Descriptions
Research Project Part 1
Ratio Analysis
OBJECTIVE
You are to assume you have been recently hired by The Company and have been assigned to a team that reports to the CEO of THE COMPANY (SELECTED BY INSTRUCTOR). The head of your team is the CFO who is concerned about THE COMPANY’s current financial performance and comparison against major competitors in the industry and the impact that may have on the firm’s stock price. The CFO would like your team to provide insights that will help them to project future financial performance. Specifically, the primary question to answer is: will THE COMPANY be financially viable over the next two to three years, and which steps should be done to improve its financial stability?
THE COMPANY that is to be analyzed for this project is to be a company selected by instructor.
Alternatively, you can request approval of another publicly traded company. This request must be submitted before the end of the first week of the course. The request must include
· identification of the company by ticker symbol and name
· a reasonable and appropriate explanation of why you want to examine the alternative company
· the source of the analyst's report that will be used in the analysis (which must be submitted to me)
· acknowledgement by you that all of the specific elements of the assignment (see below) will be prepared by you and included in the final research project report
SUGGESTED WEBSITES
www.morningstar.com
- To find the information for your company you need to type the stock symbol in the
Quotes
window to get into the company’s page.
www.marketwatch.com
-To find the information for your company you need to type the stock symbol in the
Search
window to get into the company’s page.
www.Finviz.com
- To find the information for your company you need click on Screener on the top of the screen, type the stock symbol in the
Ticker
window to get into the company’s page., and click on the company in the list.
www.money.cnn.com
-To find the information for your company you need to type the stock symbol in the
Search
window to get into the company’s page.
www.finance.yahoo.com
- To find the information for your company you need to type the stock symbol in the
Search
window to get into the company’s page.
www.nyse.com
– Click on Data, then click on Stocks (under Quotes), and type the name of the company or the stock symbol in the window “Keyword or symbol” to get into the company’s page.
www.nasdaq.com
- To find the information for your company you need to type the stock symbol in the
Search
window to get into the company’s page.
Company’s websites
YOUR SPECIFIC ASSIGNMENT
Using the information from the websites the students will develop evaluation of the financial performance for THE COMPANY (SELECTED BY INSTRUCTOR). (The evaluation portion will total 85% of the assignment grade)
-1—Background and Industry (one
short
paragraph).
-2—
Common size analys.
Mic Technical Interview Workshop January 2010
This document provides an overview of an investment banking technical interview workshop. It discusses the interview format, common valuation methods like discounted cash flow (DCF), public comparables, and precedent transactions. Sample technical questions are provided on these topics as well as accounting questions. General interview tips are offered such as thinking through questions logically and having follow up questions prepared.
Mic Technical Interview Workshop January 2010
This document provides an overview of an investment banking technical interview workshop. It outlines the interview format, common valuation methods like DCF, comparables, and precedent transactions. Sample technical questions are provided on topics like accounting, finance, and brainteasers. General interview tips are given such as thinking through questions, being confident, and following up after. Resources for additional preparation are also listed.
Product Participant Guide
Sample of a software product learners guide for a half day course on improving proficiency with using the advanced features of the product.
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Similar to Defend your choice of model, and explain why it is appropriate
Saltanat CuadraFarah Mohammad RasheedSabrina NaqviGloria the.docx
Saltanat Cuadra
Farah Mohammad Rasheed
Sabrina Naqvi
Gloria the Investor
1. Calculate the required rate of return using the Capital Asset Pricing Model (CAPM).
RCAPM = Rf + Beta of stock (Rm - Rf ) ,
where, Rf = Risk free rate of return, here treasury bond return is taken, Rf = 4.30%
Rm = return on market, here we taken as broad market return, Rm = 11.90%
(Rm - Rf ) = this can be said be Risk premium , = 0.119-0.043 = 0.076
Considering the above, stockwise RCAPM as below.
Rating of stock
Rf
Beta of stock
Market Prenium
RCAPM
1
0.043
+
0.65
x
0.076
0.0924
i.e.
9.24
%
2
0.043
+
2.3
x
0.076
0.2178
i.e.
21.78
%
3
0.043
+
1.89
x
0.076
0.18664
i.e.
18.66
%
4
0.043
+
1.2
x
0.076
0.1342
i.e.
13.42
%
5
0.043
+
1.35
x
0.076
0.1456
i.e.
14.56
%
6
0.043
+
0.67
x
0.076
0.09392
i.e.
9.392
%
7
0.043
+
1.78
x
0.076
0.17828
i.e.
17.83
%
8
0.043
+
0.95
x
0.076
0.1152
i.e.
11.52
%
9
0.043
+
0.92
x
0.076
0.11292
i.e.
11.29
%
10
0.043
+
1.5
x
0.076
0.157
i.e.
15.7
%
11
0.043
+
0.85
x
0.076
0.1076
i.e.
10.76
%
12
0.043
+
0.38
x
0.076
0.07188
i.e.
7.188
%
13
0.043
+
0.71
x
0.076
0.09696
i.e.
9.696
%
14
0.043
+
1
x
0.076
0.119
i.e.
11.9
%
15
0.043
+
0.73
x
0.076
0.09848
i.e.
9.848
%
2. Value of stock under constant dividend growth model,
P0 = D1 /(Ke-g) , D1 = D0 (1+g), D1 is the dividend receivable after 1 year
Rating of stock
D0 ($)
g
D1($)
Ke
P0 =
D0 x g
(D1/ke-g)
1
0.95
0.0065
0.956
0.0924
=
11.13
2
0
-1
0.000
0.2178
=
0.00
3
0
0
0.000
0.18664
=
0.00
4
1.3
0.0623
1.381
0.1342
=
19.21
5
0.75
0.0095
0.757
0.1456
=
5.56
6
6
0.05
6.300
0.09392
=
143.44
7
0
0
0.000
0.17828
=
0.00
8
0.75
0.0075
0.756
0.1152
=
7.02
9
0.38
0.0038
0.381
0.11292
=
3.50
10
0
-0.9
0.000
0.157
=
0.00
11
2
0.0225
2.045
0.1076
=
24.03
12
0
-0.01
0.000
0.07188
=
0.00
13
6
0.0525
6.315
0.09696
=
142.04
14
1
0.08
1.080
0.119
=
27.69
15
1.35
0.0885
1.469
0.09848
=
147.24
3. Comparison of market price of stock & stock value computed.
Rating of stock (given)
Market Price (given)
Market Value*
Stock value over market price ($)
1
12.05
11.13
-0.92
2
28.02
0.00
-28.02
3
17.75
0.00
-17.75
4
92.43
19.21
-73.22
5
63.79
5.56
-58.23
6
71.11
143.44
72.33
7
10.00
0.00
-10.00
8
49.51
7.02
-42.49
9
101.00
3.50
-97.50
10
39.78
0.00
-39.78
11
29.75
24.03
-5.72
12
73.09
0.00
-73.09
13
20.39
142.04
121.65
14
18.25
27.69
9.44
15
7.00
147.24
140.24
4. What do your results mean for Gloria?
Following shall be sequence while investing in these stocks on the basis of stock value computed.
Rating of stock (given)
Market Price (given)
Market Value*
Stock value over market price ($)
Sequence for investment
15
7.00
147.24
140.24
1
6
71.11
143.44
72.33
2
13
20.39
142.04
121.65
3
14
18.25
27.69
9.44
4
11
29.75
24.03
-5.72
5
4
92.43
19.21
-73.22
6
1
12.05
11.13
-0.92
7
8
49.51
7.02
-42.49
8
5
63.79
5.56
-58.23
9
9
101.00
3.50
-97.50
10
2
28.02
0.00
-28.02
11
3
17.75
0.00
-17.75
12
7
10.00
0.00
-10.00
13
10
39.78
0.00
-39.78
14
12
73.09
0.00
-73.09
15
Discussion Questions:
3. Compare the value.
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DuPont System of Business Financial AnalysisThe DuPont system .docx
DuPont System of Business Financial Analysis
The DuPont system of analysis is used to dissect the firm’s financial statements and to assess its financial condition from three perspectives: Operations, Investment, and Financing.
Developed by Dupont (major US chemical company) financial staff in the 1920s to enable management to gain a deeper understanding of how to raise the Return on Owners’ Equity (ROE) by better management of three key components of its business:
Operational Efficiency: (Net Profit Margin)
Asset Use Efficiency: (Total Asset Turnover), where TAT = Sales/Total Assets, and
Financial Leverage (Debt) Management: (Financial) Leverage Multiplier = Assets/Total Equity = (1 + D/E),
SOURCE: Ross, et al., Ch. 3
Copyright ©2015 Pearson Education, Inc. All rights reserved.
3-‹#›
DuPont System of Business Financial Analysis
USE of Dupont System:
If ROE is unsatisfactory for some unspecified reason, then the Dupont Identity (see below) tells the analyst where to start searching for the reason(s) for the unsatisfactory ROE
Dupont Identity:
ROE = Profit Margin x Total Asset Turnover x Equity Multiplier
Copyright ©2015 Pearson Education, Inc. All rights reserved.
3-‹#›
Derivation of DuPont IDENTITY
Both ROE (defined as Net Income/Equity) and ROA (Net Income/Total Assets) are measures of profitability.
They differ because of debt financing (aka Financial Leverage)
Thus, (1) ROE = ROA x Equity Multiplier.
After some algebra, we obtain a more detailed version of (1):
(2) ROE = Net Income/Sales x Sales/Assets x Assets/Total Equity.
Substituting into (2) the definitions of key ratios, we obtain the Identity:
(3) ROE = Profit Margin x Total Asset Turnover x Equity Multiplier
NOTES: ROA = (Net Income/Sales) x (Sales/assets)
Equity Multiplier = Assets/Total Equity = (D +E)/E) = (1 + D/E)
Copyright ©2015 Pearson Education, Inc. All rights reserved.
3-‹#›
Simplifying the Modified DuPont Formula
We can simply the preceding formula by:
1) replacing the first two terms by the ROA ratio, since ROA = Net profit margin Total asset turnover.
2) Thus, ROE = ROA x FLM.
NOTE: The ROAssets belongs ENTIRELY to common stockholders. Hence, FLM is the equity “multiplier,” adjusting UPWARDS the ROEquity.
3) Recall, that we can reexpress ROA as follows:
Copyright ©2015 Pearson Education, Inc. All rights reserved.
3-‹#›
KEY FORMULA: Modified Dupont Formula
ROE = (Net Profit/Sales) x (Sales/total Assets) x (Assets/(Assets – Liabilities)), or
ROE = Net Profit Margin x Total Asset Turnover x FLM
Interpretation:
Operations: ROE can be improved by improving the profitability of operations (Net Profit Margin), e.g., improve production and sales efficiency by cutting costs and charging a premium price.
Investment: ROE can be improved by more effective use of assets that generate sales (Total Asset Turnover).
NOTE: The TAT ratio is a “multiplier”, telling us how many times the profit margin is EARNED EACH YEAR!
Financing.
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Financial Ratio Analysis Worksheet
Your Full Name:
Ahmed Alothman
2011
2010
2009
Basic Rules
Liquidity
Current Ratio
1.50
1.6
1.2
Should be >1.00
Quick Ratio
0.86
0.95
0.6
Good to see close to 1
Leverage
Debt to total asset ratio
0.19
0.19
0.26
Good to see less than 1
Debt to Equity ratio
1.003
1.03
1.35
Smaller is better
Activity
Inventory turnover
7.8
8.3
7
Higher turnover will be better --- Smaller inventory level will increase the turnover!
Fixed asset turnover
3.3
3.2
3.2
Higher turnover will be better --- Smaller fixed assets level will increase the turnover (Productivity of the fixed assets)!
Profitability
Gross profit margin
0.3
0.3
0.3
Higher is better (Lower cost of goods sold or Higher sales will increase the margin) --- Strategic directions (Ex. Focusing on sales quantity or Lean operations)
Operating profit margin
0.06
0.06
0.06
Higher is better – Operational efficiency will be indicated. Better cost structure might increase this margin.
Net profit margin
0.04
0.03
0.03
Higher is better. Total profitability (Corporate profitability). Check the interest expense and Discontinued operations.
Return on total Assets (ROA)
0.06
0.06
0.06
Higher is better. Consider EBIT and portion of total assets. The total sales for each $1 of total assets.
Your own financial assessment / Analyses / Suggestions:
Liquidity of Staples:
Liquidity ratios are used to measures the ability of the company to pay off its current liabilities.
Using current ratio it shows that staples can pay off its current liabilities more than 1.50, 1.6, 1.2 times respectively and still remain with enough. The company is stable in paying off its current liabilities
Using quick ratio Staples can pay off its liabilities 86 percent, 95 percent and 60 percent respectively of its current liabilities.
Leverage of Staples:
Leverage measures the risk level. But for staples, the company's assets are far more than its liabilities thus the company can be able to access loan application since its ability to pay is far better and stronger. The company is less risky.
Staples has a Debt to equity ratio of 1 which means that investors and creditors have an equal stake in the company's assets. Lower ratio shoes a more stable business. Creditors always views a higher debt to equity as risky and the investors have not funded the operations as the creditors have. The company should try and look for ways to reduce on the Debt to equity ratio.
Activity of Staples:
This measures efficiency on how Staples can control its stock. Staples has a very good inventory control system. This company can sell off its inventory more than 7 times in a single year.
T.
Chapter 7
The Arbitrage Pricing Theory (APT) provides an alternative to the Capital Asset Pricing Model (CAPM) for estimating expected returns. The APT assumes returns are generated by multiple systematic risk factors rather than a single market factor. It allows for assets to be mispriced and does not require assumptions of a market portfolio or homogeneous expectations. Under the APT, the expected return of an asset is equal to the risk-free rate plus the product of each risk factor's premium and the asset's sensitivity to that factor.
FINC 330 Project DescriptionsResearch Project Part 1Ra.docx
FINC 330 Project Descriptions
Research Project Part 1
Ratio Analysis
OBJECTIVE
You are to assume you have been recently hired by The Company and have been assigned to a team that reports to the CEO of THE COMPANY (SELECTED BY INSTRUCTOR). The head of your team is the CFO who is concerned about THE COMPANY’s current financial performance and comparison against major competitors in the industry and the impact that may have on the firm’s stock price. The CFO would like your team to provide insights that will help them to project future financial performance. Specifically, the primary question to answer is: will THE COMPANY be financially viable over the next two to three years, and which steps should be done to improve its financial stability?
THE COMPANY that is to be analyzed for this project is to be a company selected by instructor.
Alternatively, you can request approval of another publicly traded company. This request must be submitted before the end of the first week of the course. The request must include
· identification of the company by ticker symbol and name
· a reasonable and appropriate explanation of why you want to examine the alternative company
· the source of the analyst's report that will be used in the analysis (which must be submitted to me)
· acknowledgement by you that all of the specific elements of the assignment (see below) will be prepared by you and included in the final research project report
SUGGESTED WEBSITES
www.morningstar.com
- To find the information for your company you need to type the stock symbol in the
Quotes
window to get into the company’s page.
www.marketwatch.com
-To find the information for your company you need to type the stock symbol in the
Search
window to get into the company’s page.
www.Finviz.com
- To find the information for your company you need click on Screener on the top of the screen, type the stock symbol in the
Ticker
window to get into the company’s page., and click on the company in the list.
www.money.cnn.com
-To find the information for your company you need to type the stock symbol in the
Search
window to get into the company’s page.
www.finance.yahoo.com
- To find the information for your company you need to type the stock symbol in the
Search
window to get into the company’s page.
www.nyse.com
– Click on Data, then click on Stocks (under Quotes), and type the name of the company or the stock symbol in the window “Keyword or symbol” to get into the company’s page.
www.nasdaq.com
- To find the information for your company you need to type the stock symbol in the
Search
window to get into the company’s page.
Company’s websites
YOUR SPECIFIC ASSIGNMENT
Using the information from the websites the students will develop evaluation of the financial performance for THE COMPANY (SELECTED BY INSTRUCTOR). (The evaluation portion will total 85% of the assignment grade)
-1—Background and Industry (one
short
paragraph).
-2—
Common size analys.
Mic Technical Interview Workshop January 2010
This document provides an overview of an investment banking technical interview workshop. It discusses the interview format, common valuation methods like discounted cash flow (DCF), public comparables, and precedent transactions. Sample technical questions are provided on these topics as well as accounting questions. General interview tips are offered such as thinking through questions logically and having follow up questions prepared.
Mic Technical Interview Workshop January 2010
This document provides an overview of an investment banking technical interview workshop. It outlines the interview format, common valuation methods like DCF, comparables, and precedent transactions. Sample technical questions are provided on topics like accounting, finance, and brainteasers. General interview tips are given such as thinking through questions, being confident, and following up after. Resources for additional preparation are also listed.
Product Participant Guide
Sample of a software product learners guide for a half day course on improving proficiency with using the advanced features of the product.
Apple1 apple
The document analyzes key financial metrics and statements for Apple Inc. over a 20-year period to determine its suitability as an investment. It calculates Apple's return on investment as 48,210%, beta as 1.29, cost of debt as 3.22%, and weighted average cost of capital as 7.16%. Similar metrics are provided for Microsoft, Walmart, Marriott, and Coca-Cola from 2019-2020. The analysis finds that Apple and Microsoft would provide the highest returns for investors.
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Individual Case Analysis GuidelinesRead the assigned case and .docx
Individual Case Analysis Guidelines
Read the assigned case and prepare answers to ALL of the following:
1. What is the company’s major problem (e.g., what decision must be made? what choice must be faced?)? Justify why you believe this is the major problem (e.g., what are some of the symptoms that you believe attribute to the major problem)
2. What is the company’s current overall objective(s)?
3. What are the current strategies to help the organization achieve its current objective(s)?
4. Using the company’s mission statement, identify which components were utilized
5. Create your “improved” mission statement utilizing all components and identify each component in your “improved” mission statement
6. How attractive is the industry (e.g., size, growth rate, profitability, competitive intensity, Porter’s 5 forces) to companies currently in the industry? And to companies who would like to enter the industry? (FYI. When you finish answering this question, you should know: 1) if you are considering entering in this industry, do you want to enter in to this industry or 2) if you are currently in this industry, do you want to stay in this industry.)
7. Conduct a Situation/SWOT Analysis (internal and industry analyses)
a. Conduct an industry analysis (external audit)
i. What are the company’s external opportunities and threats?
ii. Develop an External Factor Evaluation (EFE) Matrix, explain what the company needs to improve on externally, and justify why it needs to be improved
iii. Identify the company’s major competitors, develop a Competitive Profile Matrix (CPM), explain what the company needs to improve on competitively, and justify why it needs to be improved
b. Conduct internal analysis
i. What are the company’s internal strengths and weaknesses?
ii. Develop an Internal Factor Evaluation (IFE) Matrix, explain what the company needs to improve on internally, and justify why it needs to be improved
c. Given the IFE, EFE, and CPM, is the company stronger internally, externally, competitively, or some/all?
d. Conduct a financial ratio analysis on the company. Calculate the ratios shown in the table below and compare them with the industry. Based on your comparison, is Microsoft a healthy company performing well on financial ratios?
Profit Margin Percent
Microsoft
Industry
Gross Margin
?
75.58
Pre-Tax Margin
?
35.06
Net Profit Margin
?
28.28
Liquidity Ratios
Debt/Equity Ratio
?
0.24
Current Ratio
?
2.77
Quick Ratio
?
2.58
Profitability Ratios
Return On Equity
?
28.41
Return On Assets
?
15.7
Return On Capital
?
22.77
Efficiency Ratios
Income/Employee
?
123,791
Revenue/Employee
?
470,524
Receivable Turnover
?
6.27
Inventory Turnover
?
12.75
Asset Turnover
?
0.56
8. Develop two of the five matrices for the company: SWOT Matrix, SPACE Matrix, IE Matrix, and Grand Strategy Matrix. Highlighting each of your strategies listed
9. Utilizing the strategies developed from your matrices, develop a QSPM AND explain your recommendations/fin.
DIAS PRESENTATION.pptx
PE ratio is a metric that compares a company's stock price to its earnings per share. It indicates how much an investor pays for each dollar of earnings. A PE ratio is calculated by dividing the current stock price by the earnings per share. PE ratios help investors compare similar companies and determine if a stock is undervalued, appropriately priced, or overvalued. Factors like growth rates, profit margins, returns, macroeconomic conditions, and intangible assets can impact a company's PE ratio. Comparing a company's PE ratio to its industry peers provides useful insight into how the market values that company.
Chp 04 Growthtermvalue Hitam
The document discusses various ways to estimate growth rates for earnings, revenues, and operating income. It explores using historical growth rates, analyst estimates, and fundamentals-based approaches. The fundamentals-based approaches estimate growth based on reinvestment rates and returns on capital/equity. They note growth rates depend upon changing returns over time and how negative earnings, changing margins, and size effects are incorporated into the estimates.
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Defend your choice of model, and explain why it is appropriate
- 1. Defend your choice of model, and explain why it is appropriate FOR MORE CLASSES VISIT www.tutorialoutlet.com Below is the information as of Mar. 20, 2015: Pfizer Inc. (PFE) NYSE Price $34.25 Mar 20, 4:02PM EDT Beta: 0.89 P/E (ttm): 24.09 EPS (ttm): $1.42 Div & Yield: $1.12 (3.30%) Now you can assume that dividends will grow at a constant rate annually, You can use the Dividend Discount Model (DDM) to find the intrinsic value of this stock with the formula: Po = [Do (1+g)]/(r-g) Where Po is the intrinsic value per share g is the annual growth rate of dividends r is the required rate of return for the stock using the Capital Asset Pricing Model (CAPM): r= riskfree rate + beta (market return – riskfree rate) Use the current 10-year Treasury bond rate for the riskfree rate of return = 1.93% (in March) at www.cnbc.com or search at google.com S&P 500 Index return can be used for the market return = 12.4% for 2014. (Source: http://money.cnn.com/data/markets/sandp/) r= 1.93% + [0.89 (12.4% - 1.93%)] = 1.93% + 9.32% = 11.25% Do = $1.12 g= – the dividend for last year retention ratio x ROE Payout ratio and ROE for Pfizer are given under Key Statistics in cnbc.com or finance.yahoo.com Retention ratio = (1 – payout ratio) = (1 – 0.73) = 0.27 = 27%. Payout ratio was given in finance.yahoo.com
- 2. ROE = g= Po = 12.30% (given) 0.27 x 12.30% = 3.32%. As a decimal, g = 3.32/100 = .0332 [Do(1+g)]/(r-g) = [$1.12(1+.0332)]/(11.25% - 3.32%) = ($1.12 x 1.0332)/(.1125 - .0332) = 1.1572/.0793 = $14.59 Compare Po to current market price of $34.25. As a manager, it is important to understand how decisions can be analyzed in terms of alternative courses of action and their likely impact on a firm's value. Thus, it is necessary to know how stock prices can be estimated before attempting to measure how a particular decision might affect a firm's market value. To prepare for this Assignment, choose a publicly-traded company, and then estimate your company's common stock price, using one of the valuation models presented in the assigned readings or outside readings. Below is the information I received: Pfizer Inc. (PFE) NYSE $34.25 Mar 20, 4:02PM EDT Beta: P/E (ttm): EPS (ttm): Div & Yield: 0.89 24.09 $1.42 $1.12 (3.30%) Use the 10-year Treasury bond rate for the riskfree rate = 1.93% at www.cnbc.com or search at google.com of return S&P 500 Index return can be used for the market return = 11.93%. Check google.com for 2014 return.
- 3. r = 1.93% + [0.89 (11.93% - 1.93%)] = 1.93% + 8.90% = 10.83% Do = $1.12 – the dividend for last year g = retention ratio x ROE Payout ratio and ROE for Pfizer are given under Key Statistics in cnbc.com or finance.yahoo.com retention ratio = (1 – payout ratio) = (1 – 0.73) = 0.27 = 27%. Payout ratio was given in finance.yahoo.com ROE = 12.30% (given) g = 0.27 x 12.30% = 3.32%. As a decimal, g = 3.32/100 = .0332 Po = [Do(1+g)]/(r-g) = [$1.12(1+.0332)]/(10.83% - 3.32%) = ($1.12 x 1.0332)/(.1083 - .0332) = 1.1572/.0751 = $15.48 Compare Po to current market price of $34.25. Step By Step Instructions - Week 4 Assignment 1. Select a public company other than Pfizer. 2. Go to http://finance.yahoo.com Click on Market Data on the left of the screen. Type name of company in Search Box on top of the screen and click on Search Finance button. 3. Write down the information on the stock such as last closing price, beta of stock, EPS and Dividend in dollars and cents. 4. On the left side of screen, click on Key Statistics under Company. Note ROE as you scroll down. 5. You have the basic information to calculate the intrinsic value of the stock using the constant growth assumption in the Dividend Discount Model (refer to text readings). 6. a) Calculate the required rate of return (r) for the stock using the Capital Asset Pricing
- 4. Model (CAPM). r = (10-year Treasury Bond Yield) + [Beta (S&P 500 Index Return - 10-year Treasury Bond Yield)] Search for 10-year Treasury Bond Yield using the Search box at finance.yahoo.com. S&P 500 Index Return for 2014 can be obtained at google.com. Since the return for 2015 was negative, we can use the 2014 value of 11.39%. Plug in the data and calculate the required rate of return using the value for beta. b) The constant growth rate of dividends, g = retention ratio x ROE = (1 – payout ratio) x ROE = [1 – (dividend per share/EPS)] x ROE. g will be a percentage. Convert to a decimal by dividing by 100. c) Intrinsic value of stock = Po = [Do (1 + g)]/(r – g) Do is the dividend just paid while D1 = Do (1 + g) is the dividend to be paid. Knowing Do or D1, r and g, you can calculate the intrinsic value.